The no-drama July FOMC meeting was a testament to the Fed's meticulous, inchwise approach to disentangling itself from its crisis-era policies. As expected, the FOMC statement cranked up expectations for a September announcement another notch, while realigning other language to account for the latest data releases. It was all very much in line with the expectations laid out in our July FOMC preview.

What They Did

The Fed clearly signaled that a September balance sheet announcement is likely.

"Relatively soon" was the operative phrase, but there were a few auxiliary tweaks.

No change in rates.

The passages on inflation (weaker) and the labor market (stronger) were tweaked to bring them in line with the latest data releases.

How & Why They Did It

The signaling about September had a few components. The Fed did not commit to its next move occurring "at the next meeting" as it has in the past, most likely due to the inherent market senstivity of talking about trillions of dollars of securities. Instead, the Fed said that it expected the balance sheet announcement to come "relatively soon" -- the same phrase as it used in February (the January FOMC minutes) to signal that it would raise rates at its March meeting. Chair Yellen had already used this phrase in her June press conference and again at her semiannual testimony before Congress, but putting the phrase in the official FOMC statement throws the full force of the Committee behind it.

The Fed's wordsmiths made several other minor changes in phrasing to reinforce the "relatively soon" tip-off. Adding "For the time being" to "the Committee is maintaining its existing policy" emphasizes the limited time left before a change. Similarly, deleting "currently" from "currently expects" to yield "The Committee expects to begin implementing its balance sheet normalization program relatively soon" indicates a growing sense of conviction about and commitment to balance sheet normalization.

The Fed had already indicated that rates were likely to be paused while it prepared to set the balance sheet on a path of very gradual, passive reduction. That and weak inflation data have pushed market-implied expectations for a Fed rate hike in December down to about 50/50.

As expected, the description of core inflation changed from "is running somewhat below 2 percent" to "ha[s] declined and [is] running below 2 percent." The language about the inflation outlook was left unchanged though.

Also as expected, "moderated" was deleted from the description of job gains, which were still described as "solid." This reflects the rebound and upward revisions in the June nonfarm payrolls report.

What's Next?

Of course the Committee will be closely attuned to the next round of labor and inflation data, but they've set the bar pretty high for a change in course. According to their own language, the economy only needs to evolve "broadly as anticipated." We do have the late-August Jackson Hole conference, but Chair Yellen has tried to downplay that conference's traditional role as a platform for policy communication. The minutes of the July meeting will come out a week earlier, and those will likely give expectations for September another nudge, stealing the thunder of any Fedspeak that might come out the following week. The Fed has already said it wants the process of balance sheet shrinkage to be as boring as watching the paint dry, and they seem to be getting their way. There's no reason to think they will make any sudden moves now.